SACCI Business Confidence Index
SOUTH AFRICAN CHAMBER OF COMMERCE AND INDUSTRY Business Confidence Index October 2017
0
SACCI Business Confidence Index – October 2017
Content: The SACCI Business Confidence Index (BCI) This Month’s BCI Results Impact of Business Climate Indicators Economic Commentary General Economic Indicators
Because of information lags and changes in expectations, the dynamics of the business mood, at times, may be at variance with the economic environment. As a result, always read the BCI with other economic data and the accompanying economic commentary. For notes on the BCI, see the SACCI website at www.sacci.org.za.
1
SACCI Business Confidence Index – October 2017
The SACCI Business Confidence Index 2015=100 Month
2010
2011
2012
2013
2014
2015
2016
January February March April May June July August September October November December
110.8 113.2 113.5 114.8 111.8 115.7 115.0 119.5 119.8 117.2 118.7 119.5
119.4 118.0 120.6 118.7 117.2 118.5 114.6 114.2 113.9 112.9 112.8 114.7
112.4 115.2 110.8 109.2 107.4 109.9 105.2 110.0 106.2 106.5 106.2 107.7
108.8 107.7 104.7 106.9 104.7 104.4 105.0 104.8 105.8 105.5 105.1 106.4
104.5 106.4 107.3 107.2 102.9 103.8 101.8 103.0 103.3 102.8 105.1 102.2
103.4 107.4 103.2 104.1 100.6 97.9 101.8 97.6 94.5 102.3 95.1 92.2
92.6 92.7 94.0 95.5 91.8 95.1 96.0 92.9 90.3 93.0 93.9 93.8
Average
115.8
116.3
108.9
105.8
104.2
100.0
93.5
SACCI Business Confidence Index 150 140
Upward Phase of the Business Cycle BCI 2015 = 100
130
Index
120 110 100 90 80 Source: SACCI
Jan-85 Nov-85 Sep-86 Jul-87 May-88 Mar-89 Jan-90 Nov-90 Sep-91 Jul-92 May-93 Mar-94 Jan-95 Nov-95 Sep-96 Jul-97 May-98 Mar-99 Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-16 Jul-17
70
SACCI BCI Compared to Previous Year 10
5
-5
-10
-15
-20 Source: SACCI
-25
Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17
index points difference
0
2
2017 97.7 95.5 93.8 94.9 93.2 94.9 95.3 89.6 93.0 92.9
SACCI Business Confidence Index – October 2017
This Month’s BCI Results The SACCI Business Confidence Index (BCI) captures the prevailing business climate and what businesses are experiencing - the index is not based on business sentiment. After the SACCI BCI recovered by 3.4 index points to 93.0 in September 2017 from a low in August 2017, the BCI remained virtually unchanged at 92.9 in October 2017. The BCI registered nearly a similar reading in October 2017 than last year’s October level of 93.0. The average for the BCI in the first ten months of 2017 was 94.1 compared to 93.4 for the corresponding period of 2016, and 101.2 for the first ten months of 2015. The 2017 BCI average represents a decline of 7.1 index points on the 2015 BCI average (before replacing the Finance Minister in December 2015). Although the business climate was relatively unchanged between September and October 2017, the subdued economic performance continued to limit business opportunities. The economic overview delivered during the Medium Term Budget Policy Statement (MTBPS), confirms the dilemma the South African economy faces at present and the medium-term. The SACCI BCI currently mirrors this disappointing situation. Positive month-on-month (m/m) movements were evident in five of the thirteen sub-indices of the BCI in October 2017. Five sub-indicators reflected negative moves and three did not change on the September reading. In total, the negative moves slightly outpaced the positive movements of the sub-indices and thereby left the BCI in October 2017 virtually stable. Two positive sub-indices from the financial group of sub-indices and three from the seven real economic sub-indices had positive m/m impacts on the business confidence index in October 2017. Higher merchandise import volumes made the largest positive impact on the October BCI followed by merchandise export volumes and real retail sales. The lower real value of building plans passed, the weaker weighted rand exchange rate and higher inflation were the sub-indices making the biggest negative monthly impacts on the BCI in October 2017. The unchanged year-on-year (y/y) BCI in October 2017 was the net result of seven subindices that improved on a year ago, four sub-indices that were worse off, and two that was unchanged. Lower inflation, increased new vehicle sales and the higher real value of building plans passed were the main movers causing the positive y/y impact on the BCI. The weaker weighted rand exchange rate and less merchandise import volumes (due to the subdued domestic economy), had the most negative y/y influence on the business climate in October 2017. Real economic activity sub-indices overall improved on October 2016 (six of the seven sub-indices positive) while the financial conditions was tighter – one of the six sub-indices positive.
Impact of BCI Sub-indices on the BCI 3
SACCI Business Confidence Index – October 2017
o
o
Manufacturing
o
Exports
+ +
Previous Month
Previous Month
Energy Supply
BUSINESS CLIMATE INDICATORS *
y/y Changes This Month
This Month
m/m Changes
-
+ + +
+
-
+
Vehicle sales
-
+ + + +
Retail sales
+
o
Construction - buildings
-
+ +
+ + + +
Share prices
+
o
-
-
Real private sector borrowing
o
o
o
+
Real financing cost
+
-
-
Precious metal prices
-
+
o
-
-
-
+
Imports
Inflation¹
Rand exchange rate
o
+ +
* See notes on BCI on www.sacci.org.za
Cyclical Moves of Selected BCI Sub-indices 160
120 100 80 60 40
SHARE PRICES
RETAIL SALES
BUILDING PLANS
MAN PRODUCTION
VEHICLE SALES
EXPORT VOLUMES
20
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17
Long-term Trend = 100
140
4
SACCI Business Confidence Index – October 2017
Economic Commentary Moribund Domestic Economic Conditions? The IMF, in its October 2017 World Economic Outlook (WEO), cited an increase and firm projected growth for the world economy. Accelerating fixed investment, trade, and manufacturing output supported by stronger business and consumer confidence, are enhancing the performance. Improved forecasts are compensating for downward revisions for the United States, the United Kingdom, and India. The IMF sees that: ‘… this recent pickup provides an ideal window of opportunity for policymakers to undertake critical reforms to stave off downside risks,..”
GLOBAL ECONOMIC PROSPECTS Economic Growth
2015
2016
2017f
2018f
2022f
%
%
%
%
%
3.4 2.9 2.0 1.5 2.2 1.1 4.7 6.8 6.9 8.0 3.4 1.3
World United States Euro Area Germany United Kingdom Japan Emerging & Developing Europe: Emerging & Developing Asia: China India Sub-Sahara Africa: South Africa
3.2 1.5 1.8 1.9 1.8 1.0 3.1 6.4 6.7 7.1 1.4 0.3
3.6 2.2 2.1 2.0 1.7 1.5 4.5 6.5 6.8 6.7 2.6 0.7
3.7 2.3 1.9 1.8 1.5 0.7 3.5 6.5 6.5 7.4 3.4 1.1
3.8 1.7 1.5 1.2 1.7 0.6 3.2 6.3 5.8 8.2 3.9 2.2
Source: IMF, WEO October 2017. f = forecast.
The IMF further noted that: ‘Fiscal policy should be aligned with structural reform efforts, taking advantage of favourable cyclical conditions to place public debt on a sustainable path while supporting demand where still needed and feasible. In many emerging market and developing economies, fiscal space to support demand is limited, especially in commodity exporters.’
The South African Situation It appears that South Africa is not currently in a position to take advantage of improving global economic performance. SACCI, in its pre-Budget comments, urged the Minister of Finance to issue a policy statement that will restore confidence to the business environment and markets in general and in particular deal decisively and clearly with issues causing uncertainty. These include fiscal discipline, the funding gap and the deficit, restore faith as an investment destination, reinforce capital investment programmes in infrastructure, addressing financial bail-outs of SOE’s, and implement the National Development Plan (NDP). The difficult economic conditions, however, caused the Finance Minister to delay major decisions on the Budget until February 2018 allowing the budget deficit to rise to 4.3% of
5
SACCI Business Confidence Index – October 2017
GDP from the 3.1% target set in the February 2017 Budget. Spending will be R3.9 billion higher than anticipated; revenue to fall short by R50.8 billion; and economic growth revised down from 1.3% to 0.7% for 2017. Given this economic and public finance scenario, the medium-term budget policy statement was more austere than anticipated as the Minister gave a frank interpretation of the difficulties confronting the economy. Treasury’s pledge that debt would peak at 52.9% by 2018/19 could not hold. Debt is now projected to continue rising beyond 2021/22 where it will reach 60.8% of GDP. Debt costs will constitute 15% of revenue by the third year of the medium-term framework. Household and Government Debt 100 90
Gov't Debt as % of GDP
80
Household Debt as % of Disposable Income
Percent
70 60 50 40
30 20
0
1Q80 1Q81 1Q82 1Q83 1Q84 1Q85 1Q86 1Q87 1Q88 1Q89 1Q90 1Q91 1Q92 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17
10
The extension of the expenditure ceiling was inevitable due to, amongst others, the guarantees for financial stressed and ill-managed state-owned enterprises. In particular South African Airways (SAA) and the South African Post Office (Sapo) to which an additional R13.7 billion will be transferred in the 2017/18 fiscal year with SAA getting R10 billion and Sapo R3.7 billion. Government intends selling state assets to close the financing gap by the end of March 2018. Telkom share sale remains an option to finance the additional expenditure while National Treasury indicated that all state assets would be investigated. The Treasury also lowered its forecast for this year's economic growth to 0.7 % from an earlier estimate of 1.3 %. Weak growth has foiled government's ability on all levels of government to engender revenue and lower debt. Economic despair is increased by allegations of corruption that distorts investor confidence.
Credit Ratings Ratings agencies point out that the future of the investment-grade rating on the country's local currency sovereign debt rests on keeping to the fiscal framework set by the former Finance Minister. Fitch has South Africa’s local currency debt as junk while Moody's rates both foreign and local currency debt slightly above speculative grade. S&P and Moody's scheduled to review South Africa in November 2017, but Fitch has not indicated when it will review South Africa’s credit and investment rating. The focus will be on how financial support to struggling SOE’s such as South African Airways (SAA), which have been highlighted by
6
SACCI Business Confidence Index – October 2017
the rating agencies as one of the problem areas, will be resolved. Treasury provided SAA with a second bailout for the year in September 2017.
Unemployment Remains High The sluggish domestic economy did not expand adequately to create meaningful employment opportunities. Formal non-agricultural employment declined between the 1st quarter of 2017 (11.3 million) and the 2nd quarter of 2017 (11.2 million), but recovered to 11.4 million in the 3rd quarter of 2017. The rate of expanded unemployment rose from 36.3% in the 3rd quarter of 2016 to 36.8% in the 3rd quarter of 2017 or 9.4 million people. The number of unemployed is not the only consequence of subdued economic performance, but it places a further burden on public sector finances and ads to poverty.
Labour Force: Unemployment and Employed 140
130
Index 2010 = 100
120 110 100 90 Expanded Number Unemployed
80
Unemployment Number
70
Formal Number Employment - Non-Agriculture
1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017
Source : StatsSA
Conclusion With the economy in difficulty and feeble prospects of improved performance in the near to medium-term, public finance and employment are the most obvious areas where the consequences are clear and real. Consistency in tried and tested economic policy should be followed to create certainty for investors and business over the longer term. The only appropriate avenue to generate growth is to nurture investors and the business environment in order to obtain a sustainable economic performance that generates the fiscal space, jobs, greater opportunity, inclusivity and wealth.
7
SACCI Business Confidence Index – October 2017
General Economic Indicators Indicator
Consumer inflation headline urban (%) Consumer inflation urban - excl. food, bev. & fuel (%) Money supply M3 eop (% Δ Y-o-Y) Private sector credit eop (% Δ Y-o-Y) Real prime overdraft rate eop (%)* Prime overdraft rate eop (%) Liquidations number sa Bond yield 5-10y govt eop (%) R / US$ average R / Euro average
Indicator
Period
Direction
Latest
Sep-17 Sep-17 Sep-17 Sep-17 Sep-17 Oct-17 Sep-17 Oct-17 Oct-17 Oct-17
Date
5.1 4.5 6.7 5.6 5.5 10.3 149.0 8.39 13.71 16.11
Direction
Latest
Previous
4.8 4.3 6.5 6.0 5.7 10.25 169 7.88 13.16 15.66
Previous
2016
6.3 5.8 6.1 5.1 4.4 10.50 161 8.65 14.70 16.28
2016
2011
5.0 4.0 8.3 6.2 4.8 9.00 297 8.01 7.25 10.08
2011
Income & wealth tax / GDP (%) saar Total tax / GDP (%) saar Public sector borrowing requirement / GDP (%) Public sector expenditure / GDP (%) Budget Balance / GDP (%)
q2-17 q2-17 q2-17 q2-17 q2-17
16.4 29.1 6.3 28.4 -3.2
16.2 28.6 0.7 28.5 -2.0
15.1 28.2 3.7 28.4 -4.2
14.1 26.0 4.2 27.1 -4.0
Imports / GDE (%) Exports / GDP (%) Net foreign investment flows / GDP (%) Current account balance / GDP (%)
q2-17 q2-17 q2-17 q2-17
29.2 30.1 3.3 -1.6
28.9 29.7 0.6 -2.8
30.2 30.3 4.8 -3.3
29.9 30.4 3.4 -2.2
Gross domestic saving / GDP (%) saar Gross capital formation / GDP (%) saar Net fixed capital formation / GDP (%) GDP growth (% Δ Y-o-Y)
q2-17 q2-17 q2-17 q2-17
16.3 18.7 1.1
17.2 19.3 1.0
16.1 19.4 5.4 0.3
17.5 19.7 6.2 3.3
Δ=change; eop=end of period; Y-o-Y=year-on-year; q=quarter; sa = seasonally adjusted; saar=seasonal adjusted annual rate; GDP=Gross Domestic Product; GDE=Gross Domestic Expenditure. *Deflated by inflation excl.food, bev. & fuel.
8
